Monthly Archives: March 2017

Trust fund babies

THEY are referred to as children of wealthy parents who have lots of money set aside for them and often feel entitled. Everything they spend is paid for by their trust fund.

When you think of trust fund babies, you immediately think of socialite Paris Hilton, the celebrity great granddaughter of Conrad Hilton, the founder of Hilton Hotels.

In a Wikipedia article, critics and admirers have said that Hilton is “famous for being famous,” a celebrity not because of talent or work, but through inherited wealth and lifestyle.

I was in Singapore last week for my regular family governance work and was introduced to a business owner who narrated how his unprepared, ill-equipped eldest child mismanaged and almost caused the downfall of their 40-year-old business.

As the old man was talking to me and a colleague, he was shaking, groping for words and trying to make some sense out of the irreversible damage inflicted by the son’s entitlement. It was heartbreaking to learn that the assets were dissipated because of the son’s faulty judgments and his self-fulfilling prophecy that he should not be made accountable for his actions.

I finally got to meet the western-educated son over lunch, and as expected, he was cocky, abrasive and showed no traces of remorse for his failed actions. No doubt, he was, pun intended, an SOB (son of the business owner).

To conclude our lunch, I told him that he will no longer report to his father but to a functioning board comprising three members (his father included) and two independent directors. And that in my next session, a full audit report must be submitted to the board for review. Lastly, the son will also transmit all his initiatives and henceforth will strictly follow corporate governance policies.

To regain investor and creditor confidence, the son will also be required to sign an employment agreement that will monitor his performance based on financial metrics and qualitative variables.

Non-compliance of these rules and targets will result in his replacement by a non-family CEO within 12 months. He was still stunned with disbelief when I excused myself to catch a flight back to Manila.

The term trust fund baby is more of a stereotype for entitled kids who love to party but don’t even know the value of hard work. Having entitled and confused children in the family business is fraught with danger. When they are made to join the family business and there are no rules defining their participation, entry and exit, you would typically expect these children to act like spoiled brats and bully their way by demanding power without accountability.

Consultant Rick Johnson correctly stated that “an attitude of entitlement that is displayed openly can create major challenges for even the most successful family business.” This attitude is often displayed by the family member’s work ethic expecting every employee to “live to work” and give of themselves unconditionally while Junior takes off every Friday afternoon or goes on extended vacations.

Johnson further expounds that these children often manage with an autocratic style with little empathy for employees and leaving the impression that they can do whatever they want because they will run the company someday.

What Johnson highlighted is a very common sight among family members working in successful family businesses in Asia and the next generation “owner mentality” is causing a lot of sleepless nights for parents, founders and business owners.

The fear and paranoia are real as the sense of entitlement feeds into the child’s last name as a birthright then degenerates into a mindset of an owner mentality.

To be continued.

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.
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Fighting for the throne: A father and son conflict (Part 2)

FOR almost 20 years, Jonathan devoted practically all of his waking hours working for the family business.

But the last two years was different and the wife knew that the cause of her husband’s sudden change in behavior toward his family and friends was a result of the tension building between Jonathan and his father.

With pressure from work and the frequent skirmishes with his father aggravated by declining revenues, Jonathan was now in a situation where he had to make a difficult decision.

For several weeks, the thought of leaving the business for good entered his mind. After seeking advice from friends, he listed several options:

a. Resign and look for work elsewhere or put up his own business.

b. Initiate discussions with his younger sibling to take over the day-to-day function.

c. Use Option B and request that he be given a non-executive function.

d. Take a long vacation with the family and think things clearly.

e. Confront his father and tell him not to intervene anymore.

f. Request for early retirement upon reaching his 20th year, several months away.

g. Advance his share of the business.

He also thought long and hard that the option to resign would certainly spark more discussions and worsen the already strained relationship with his father.

Reflecting on the story of Jonathan makes you conclude that the patriarchal shadow never really left the scene even if the father officially signified his intention to step back and let his son run the business.

But why did the father come back? Was it due to some major decisions made by his son that triggered his “return”?

I have outlined a list of possible “triggers” that may have caused the father to reclaim power.

– Father has worked all his life so leaving a position of power is like dying a little.

– He is experiencing a personal loss of identity and the fear of losing significant work activity compels him to interfere.

– Jealousy towards the son or his lack of confidence in Jonathan.

– Father’s interference could also be due to the perceived “lackadaisical” attitude of Jonathan towards work. He thinks the son lacks the drive to run the business.

– Jonathan’s penchant for reporting for work at 10 a.m. goes against the grain of the father’s unblemished record of going to the office at 7 in the morning without fail.

– The business has registered flat growth since Jonathan assumed the leadership role, prompting the father to set aside retirement.

– Some employees that used to report directly to the father have resigned, citing their difficulty in adjusting to Jonathan’s style of management.

Complex and dynamic relationship

– Why the father’s inaction and reclaiming control or power may work against the successful transition

– Father consciously facilitates son’s entry but subconsciously needs to be stronger than his son.

– Son seeks increased responsibility and authority but finds that his father refuses to cede authority, or continues to call the shots from behind.

Acrimony

This father and son conflict is a natural event, but if left unresolved may lead to a slew of more predictable problems that can cause serious implications on the state of the enterprise.

Therefore, it is extremely important that a third-party advisor look deeper into the conflict before it further escalates. He must immediately clarify the roles of both father and son and make the family members realize that when mixing family and business, several overlaps will get in the way. These overlaps, especially the family component, if left unmanaged, tend to feed on each other. As the business matures, you can expect conflict and confusion.

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.

Fighting for the throne: A father and son conflict (Part 1)

THE case study you are about to read is a consolidated version of five father-son conflicts that my office, W+B Advisory, resolved in the last quarter of 2016.

The families are dispersed in different parts of Asia but with almost similar dynamics.

For family business consultants helping to untangle this form of complicated relationship, the article is not meant to provide solutions but gives family members a better understanding of the trigger or pain points or to put it mildly, the sources of conflict.

In my years of coaching family businesses, there is really no hard and fast rule nor a one-size-fits all solution. Each family conflict is unique and complex and my singular purpose in writing this sensitive topic is to enable families to act with dispatch when confronted with conflict situations.

Growing number of father-son conflicts

Working with Asian families has afforded me a deeper understanding of the conflict. I have seen, heard and intervened in cases involving parents (mostly fathers) pitted against their children, siblings against siblings, cousins against cousins, family members against in-laws, children against half siblings/adopted children, etc.

I also want to sound the alarm bell: generational conflict involving founders and their children in the Philippines and overseas are growing in number. And to finally put this topic into perspective, this kind of conflict is worth sharing as:

a. It ranks very high in the number of advisory interventions I have had in the past decade.

b. The problems, though complex, are predictable and can be resolved.

c. The protagonists are emotional and defensive and can’t seem to find a middle ground.

d. The complex dynamic of fathers and sons (siblings) is as old as the world.

e. The survival of the enterprise and the unity of the family are at stake.

A story of conflict

Jonathan (not his real name) is a next generation appointed successor, having worked under the tutelage of his father for 19 years in a family-owned trading company.

The business was founded by his father through sheer hard luck.

Jonathan was fortunate to have worked for three years outside the family business right after graduating from a university and if he had his way, he would have wanted to stay longer as a professional. But a call from his father one afternoon changed everything.

He considers joining the family business as his ultimate sacrifice after he ended what would have been a flourishing career as a sales manager of a prestigious business organization.

Fast forward 20 years

At 45 and married with two kids, Jonathan will be celebrating his 20th year next year working for the family business. To borrow a quote from him…

“For many years, I have learned to accept and manage papa’s continuing interference on the way I run the operations, as well as the direction of the business. But in the last two years since papa officially announced his retirement, the arguments have become more frequent and has resulted in unending squabbles. I hate to admit it but sometimes our discussions turn ugly and I feel guilty just thinking about it. Is there a way out of this Prof.?”

Not a week has passed where father and son always end up disagreeing on operational decisions. What originally appeared to be a seamless handover of the enterprise to the next generation has become a difficult one and on the verge of a breakup.

Apart from the heated discussions, profits have generally been flat and employee attrition rate has been registering higher than industry rate since the son assumed the role of CEO.

To be continued.

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.

Avoiding a Cain and Abel (Part 2)

LUCY rejoins the family business.

After separating from her husband, Lucy called Irene one night and decided it was time for her to come home and rejoin the family business. Whether it was planned or not, it was obvious that Lucy’s re-entry would reinforce and embolden Irene to raise the matter of governance, business direction and the unfair ownership distribution.

It was just a matter of time that the original distribution of shares among the children would end up becoming an urgent and sensitive issue. And with Lucy siding with Irene, the children are heading toward a collision course ready to draw swords with the slightest disagreement.

Clearly, the brothers understood that their sisters felt betrayed with the unfair ownership structure created by their deceased father but they chose to ignore it.

Over time, the business continued to grow and there were attempts by the sisters to discuss the ownership structure, including the major contribution of Irene. But in several occasions, the brothers deliberately avoided discussing the injustice related to ownership. Avoiding the “forbidden issues” ended up with heated discussions, resulting in intense and volatile relationships among siblings.

One day, Irene decided it was time to seek advice from a third-party family business advisor.

The first meeting was tense and the siblings felt awkward discussing a myriad of sensitive issues with me. My role was to listen, but there were times I had to interrupt them as the discussions ended with a lot of finger-pointing. After hearing all sides, I finally made my position very clear.

I went to task by addressing critical issues related to family involvement, ownership and the business. Below is the process as well as my intervention in creating a governance system for the family:

a. Helped resolve the ownership and business problems in a fair process

b. Assessed the state of family and the business

c. Facilitated a discussion in developing long term goals for the business

d. Helped the family craft policies that will govern family- business relationships

Established a family council to provide a discussion forum

e. Provided a forum for family members to participate in policy making

f. Prioritized the “sensitive agenda” like ownership, decision making, conflict resolution and define the ground rules

Developed a family constitution

g. Encouraged family members to identify their values and sense of purpose and why they have to work together

h. Documented all the rules and the agreed-on principles among the siblings

Developed a succession plan

i. Helped them lay out their role changes

j. Prepared documents that will make retirement timely and unequivocal

Without the appropriate governance tools, the transition of the family to a sibling partnership right after the death of the patriarch was a key risk factor that led to a breakdown in communication, ineffective decision-making and frustration and conflict.

When there was no intervention, the desire to dissolve the family enterprise became so intense that on the day I met Irene, she confessed that she already reached a tipping point and ready to confront her siblings with her plans meant to further shatter the business: to fight her siblings, to sell her shares or challenge them to sell the enterprise.

I told her to try family and business governance. She answered back, “What if it will not work Prof.?” I said, “The greatest failure is never to have tried at all.”

(esoriano@wongadvisory.com)

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Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession. Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.